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Development

Low-income countries differ from higher-income countries in that they have large informal sectors, greater prevalence of self-employment and subsistence agriculture, low female labor participation rates and poor labor market conditions. As labor is most often the only asset of someone in poverty, policies that are not associated with job creation may fail to reduce poverty. Contributions to this subject area deal with the potential of labor economics to address those challenges.

Public education tends to crowd out parents’
time and money, but careful policy design may mitigate this

Many countries around the world are making
substantial and increasing public investments in children by providing
resources for schooling from early years through to adolescence. Recent
research has looked at how parents respond to children’s schooling
opportunities, highlighting that public inputs can alternatively encourage
or crowd out parental inputs. Most evidence finds that parents reduce their
own efforts as schooling improves, dampening the efficiency of government
expenditure. Policymakers may thus want to focus government provision on
schooling inputs that are less easily substituted.

The institutional structure of pension systems
should follow population developments

For decades, pension systems were based on the
rising revenue generated by an expanding population (the so-called
demographic dividend). As changes in fertility and longevity created new
population structures, however, the dividend disappeared, but pension
systems failed to adapt. They are kept solvent by increasing redistributions
from the shrinking working-age population to retirees. A simple and
transparent structure and individualization of pension system participation
are the key preconditions for an intergenerationally just old-age security
system.

The right policies can help the self-employed to boost
their earnings above the poverty level and earn more for the work they do

A key way for the world’s poor to escape poverty is to earn
more for their labor. Most of the world’s poor people are self-employed, but because
there are few opportunities in most developing countries for them to earn enough to
escape poverty, they are working hard but working poor. Two key policy planks in the
fight against poverty should be: raising the returns to self-employment and creating
more opportunities to move from self-employment into higher paying wage employment.

Enforcement improves legal compliance, but its
impact on welfare is country specific and unclear

More than half of private sector employees in
the developing world do not receive legally mandated labor benefits. These
regulations have typically been enacted by democratically elected
governments, and are valued by both formal and informal workers. Increasing
public enforcement (e.g. inspections, fines, and workers’ access to the
judiciary) can be a powerful tool to reduce violations (e.g. increase the
number of employees earning above the minimum wage). Which factors determine
enforcement, and whether enforcement produces more social benefits than
costs, are, however, unanswered questions.

How to design social protection programs that
poor women can benefit from

Women are more likely than men to work in the
informal sector and to drop out of the labor force for a time, such as after
childbirth, and to be impeded by social norms from working in the formal
sector. This work pattern undermines productivity, increases women's
vulnerability to income shocks, and impairs their ability to save for old
age. Many developing countries have introduced social protection programs to
protect poor people from social and economic risks, but despite women's
often greater need, the programs are generally less accessible to women than
to men.

Better information on university quality may
reduce underemployment and overeducation in developing countries

As the number of secondary school graduates
rises, many developing countries expand the supply of public and private
universities or face pressure to do so. However, several factors point to
the need for caution, including weak job markets, low-quality university
programs, and job–education mismatches. More university graduates in this
context could exacerbate unemployment, underemployment, and overeducation of
professionals. Whether governments should regulate the quantity or quality
of university programs, however, depends on the specific combination of
factors in each country.

Improving outcomes for women takes more than
raising labor force participation—good jobs are important too

The relationship between female labor force
participation and economic development is far more complex than often
portrayed in both the academic literature and policy debates. Due to various
economic and social factors, such as the pattern of growth, education
attainment, and social norms, trends in female labor force participation do
not conform consistently with the notion of a U-shaped relationship with
GDP. Beyond participation rates, policymakers need to focus on improving
women’s access to quality employment.

Raising the minimum wage in developing countries
could increase or decrease poverty, depending on labor market
characteristics. Minimum wages target formal sector workers—a minority in
most developing countries—many of whom do not live in poor households.
Whether raising minimum wages reduces poverty depends not only on whether
formal sector workers lose jobs as a result, but also on whether low-wage
workers live in poor households, how widely minimum wages are enforced, how
minimum wages affect informal workers, and whether social safety nets are in
place.

Uncoordinated unemployment insurance and
severance pay do a poor job of insuring against losses resulting from job
displacement

Job displacement poses a serious earnings threat
to long-tenured workers through unemployment spells and lower re-employment
wages. The prevailing method of insuring job displacement losses involves an
uncoordinated combination of unemployment insurance and severance pay. Less
developed countries often rely exclusively on public mandating of employer
severance pay due to the administrative complexity of unemployment insurance
systems. If both options are operational, systematic integration of the two
is important, although perhaps not possible if severance pay is voluntarily
provided.

More important than defining and measuring
informality is focusing on reducing its detrimental consequences

There are more informal workers than formal
workers across the globe, and yet there remains confusion as to what makes
workers or firms informal and how to measure the extent of it. Informal work
and informal economic activities imply large efficiency and welfare losses,
in terms of low productivity, low earnings, sub-standard working conditions,
and lack of social insurance coverage. Rather than quibbling over
definitions and measures of informality, it is crucial for policymakers to
address these correlates of informality in order to mitigate the negative
efficiency and welfare effects.